A recent report on the Barclay's LIBOR manipulation story had a well-respected financial reporter saying that this is "more proof" that the banking industry "shouldn’t be trusted to regulate itself." On one level, this might be viewed as a refreshing progressive statement. But upon further consideration, it is a troubling reminder at how effective the banking lobby has been at distorting the mainstream parameters of the issue.

Why should we need "more proof" that banks shouldn't make the rules governing their profit levels, or any proof at all? It doesn't take a Nobel laureate economist (even one who didn't used to work at Goldman Sachs) to know that letting the milkman set the price of milk comes with serious risks to the demand side of that market.

Having worked for the past few years with some industries with powerful lobbying arms (banking and healthcare, in particular) I've become aware of a familiar cycle in response to public revelations of fraud. No matter how egregious the behavior, the lobby immediately produces a blitzkrieg of "one-bad apple" PR - saying the vast majority of operators are honest, follow the rules, and that the whole industry should not be judged by the greedy acts of the few. Thus, the response to LIBORgate is - we've cut out the cancer, there is no need for increased government oversight because the evil actors are longer here to be overseen.

This narrative is half-convincing until you see it operate for any period of time. Sure, every company follows the rules most of the time. But in industries with a significant amount of self-regulating, the main players also get to choose when they won't follow the rules (as when their risk/benefit analyses show that a certain gain is worth the risk of getting caught). What's more, industry players have a large say in the punishment when they do get caught. Witness JP Morgan Chase's recent nationwide settlement with US state attorneys general over ARM mortgage scams. Here's how it works: the company negotiates with government prosecutors or other regulators for a year or so - just enough time to show the regulator that a full-on prosecution or other regulatory action would take years of hard-fought litigation to complete. Then, the company makes an offer: it will pay a large-sounding sum (often running into the nine-figure range) to settle the whole thing. Never mind that the offer is small relative to the whole fraud. There is a large incentive for the government to accept, because all of the main parties get what they want. The prosecutors/regulators get a good headline with a large penalty to report (these reports, of course, often omit the full figure of the alleged fraud or the fact that part of the deal is that the comoany does not have to make an admission of liability). The companies get to keep the lion's share of their fraud and get back to business as usual - all they have to do in exchange is dump a few sacrificial lambs as eyewash. And a third party wins as well - the company's attorneys, usually a large multinational law firm. They get paid a hefty chunk to oversee the investigation and the settlement - and thus is a third powerful interest co-opted into the process.

I've seen this cycle play out several times now. There have been a few exceptions in the past few years since the recession. Last December, US federal judge Jed Rakoff rejected the SECs proposed settlement with Citigroup. Rakoff rebuked the government, essentially asking them, "how is this different from allowing the bank to buy its way out of trouble?" The SEC's response was telling: in effect, it stated, "We've always done it this way, why is this a problem now?"

All of this has convinced me that, if we are serious about getting banking fraud (or fraud in any high-margin industry with large, powerful actors) under control, we need fundamental structural reform of the regulators, including rules that settlements must include at least some admission of wrongful conduct.

I think this sort of thing begins when the bankers hear that so-and-so's trading room hearing that somebody or other is betting against the pound in favour of the franc or the lira or the pfennig and the Governor of the Bank of England is on the telephone and that they've just been told to show the stiff upper lip that they were born with and defend the pound, they played loose and fast with the technical details of the regs for a few days.

I happen to believe that sort of thing happened years ago before the Euro and the creation of the European Central Bank to stop all that silliness.

There are any number of casinos they can go to if they want to gamble ...

What the community requires is prudential banking regulation to make them invest the community's savings wisely in manufacturing, mining and agriculture!

One could never believe that a major bank like Barclays adopted such a disgusting method to make money!Bob Diamond and others under whose watch this happened must be made accountable and be thrown out from the bank without delay and must not be paid termination benefits and other compensations,if payable. These people also deserve to be prosecuted under law of the land as their acts are criminal in nature.

Not only the likes of Mr Diamond - but every trader involved and his/her manager and the senior managers who set ridiculous targets should be axed and their assets seized. Add to this the fact that the senior management in at least one of the banks knowingly assisted their trader to "avoid" tax on their bonusses by disguising the payments as "loans". The fact that they "co-operated" is a misnomer - they knew they had no choice . The regulators pussy-foot around and the losers are the shareholders, who are ultimately "the man in the street" i.e. members of Pension funds etc. who invest in the business.

More regulation is not the answer - the regualtors have to take action and do it consistenly and decisively.

The final paragraph of this article hits the nail on the head. The ramifications of fiddling Libor and Euribor are hard to even imagine. The ultimate problem is that in creating the "bonus culture" in banks, where the rewards for "success" are so extreme, it is only human nature that at least some will go beyond the rules of the game and succumb to the temptation.

Rigging Libor and Euribor is truly a major matter, since they are fundamental to the contractual relationships between parties, whether in damages clauses, or in interest rate clauses. "Libor + x%" is a drafting concept known to all lawyers, bankers, accountants, etc., essentially accepted as fair by all. Maybe it still is. Rather a shame that we have to add the "maybe" though.

Libor existence is about 30 years and supported the London financial position as market place for liquid offshore currencies like USD, Yen, Swiss Aussies etc. The trust placed by the financial institutions and its consumers on the system innovated by British legal and financial houses was unquestionable until recently. This is indeed a sad time for banking in Britian and advanced countries. This is especially so when international reputeable banks have worms coming out of their cans!

Whatever happened to clawback?
Financial salesmen paid on commission can have it either on indemnity or accruals basis.
Bankers who have lied and cheated are frauds like Bernie Madoff.
If they were ordinary salesmen selling life assurance, mortgages or investments, they would have the whole of their ill-gotten gains reclaimed. That goes back a very long way.
These guys have ruined the global economy by concealing true interest rates.
All the money printed by US and UK governments to stave off the crisis should now be reclaimed from these bankers to the last dime and penny.
Banking is based on trust as in the game of monopoly.
That is why banker is best served in Monopoly.
Now it has turned out to be true in real life.
The cash needs to be reclaimed back for many years of 'bonuses' gained illegally. They should join Madoff.
In future banks need to be small enough to fail.
Pay a reasonable salary. No bonuses - it encourages gambling.
Why is everyone pussyfooting around.
FSA came down like a ton of bricks on so-called misselling of pensions. That was an easy target.
They had written a computer program that calculated how much a financial adviser had lost. However, it a financial advisor, who did not handle client money, suggested a successful growth investment, it did not calculate gains.
With regulators working with rigged programs and banks with rigged markets, where does that leave the majority of honest taxpayers!
We need fast action to claim back our losses before it goes in lawyers fees.

The sooner these people stand down, without compensation, and cease to earn mega bucks, the better for everyone, especially the innocent by-stander victim, suffering directly or indirectly from the fall-out.

Let's identify the core risk management failure here. Even before considering the legal and political risk, think about the signals screaming at the bank's management: Markets can and do move many basis points in a day. When any one trader has a position so large that the impact of a single basis point is so significant to his pay (or bonus or promotion) that he is willing -- in writing -- to violate the rules, risk his job, and threaten the company's health, by taking a small chance of maybe being able to manipulate the outcome (BBA's process rejects extreme quotes anyway), does that not flag loudly the true underlying problem in itself -- that too much risk is concentrated on one desk or by one trader? The legal/regulatory risk matters, to be sure, as it manifested itself here, but the concentrated market risk alone should have prompted a change, which in turn likely would have reduced or eliminated the incentive for such desperate and probably fruitless manipulative efforts. Shame on management. I see no role for criminal penalties here; I can imagine shareholders (rightly) could sue, and counterparties too (except some of them might have been playing the same or the opposite game!). And what of other Barclays staff who stood to LOSE from an manipulated fixing? Fun times in the management suite at Barclays this week, I imagine.